Tom Doe, CEO of Municipal Market Analytics, an independent research firm providing strategic analysis and insights on the U.S. municipal bond market, joined me on a recent episode of The Impact to discuss climate impacts on muni bond pricing and credit.
Jeff Gitterman: We could just start by the fact that for 10 years I’ve been asking people why the municipal markets aren’t pricing in climate risk. Maybe you could finally give me the answer to that question.
Tom Doe: It’s all about denial. The big thing is that the market has just believed that climate is not a material event to the payment of the bonds. And so as a result, everyone has just been in denial with it. In the past, the municipal market has always believed that FEMA would bail them out, that federal money would come in and restore the community and provide a situation of economic vibrancy, bonds would appreciate in price. And we go on the next day.
JG: Yeah, everyone made out from weather issues, which is a terrible thing.
TD: Correct. But it was a federal support, and that, as we’ve talked about, is, and we’ve all seen in the
headlines, is that now FEMA may not be there, and I think this is a huge, huge event for the municipal bond industry because we won’t have that backstop.
JG: We’re already starting to see from data some moving patterns around lower risk flood areas where people are not wanting to move, or they’re pricing higher for higher elevation. So I feel like you’ve got this squeeze about to happen in the municipal markets, where client and clients and homeowners have this data, and FEMA might be backing off. Are you hearing any sense from either municipal bond rating agencies or from municipal bond issuers that they’re starting to get concerned about all of this?
TD: The concern is rising. But the rating agencies have bought climate data companies and now are stating that they are incorporating climate data into their measurements of creditworthiness. And now what’s interesting is that since the rating agencies are looking at climate data, now that’s creating a material event.
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